My analysis is when trading with only a small capital, a trader would almost never reach a profit-generating level that could support her/his living comfortably. That means practically no growth of capital at all. Actually that would be a negative growth of capital (after living expenses). Then the trader would never get rich that commonly requires re-investing of profits for componding power. Therefore undercapitalisation can be as bad as in any other businesses.

Another reason is it might take a fairly long period of time for a trader to become successful. Without adequate capital, the trader has to give up her/his dream, probably just before getting there.

Psychological heat when capital is insufficient would be also a major factor, I think.

With small capital, designing systems sometimes would encounter limitations as well.

Psychological heat when capital is insufficient would be also a major factor, I think.

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This can work both ways OT.
Too much account and too little brain power can result in death by a 1000 cuts.

A smallish account can keep you sharp.

An undisclosed problem of inadequate funding rears its ugly head when a newish Trader makes a giant boo boo and then presses the flatten button.
This MO must first be accepted in his/her Brokers account before being sent off to market.

My suggestion is never ever put yourself in this position.
But by the time that you fully comprehend just what I am saying, you dont need me.